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Desalination Companies as an Energy Play

Written By Nick Hodge

Posted March 3, 2010

You love investing in energy. You wouldn’t be here if you didn’t.

And as you know, I love it, too.

I love it because it’s crucial for everything we do — and I mean everything: cooking breakfast, taking a shower, turning on the lights, driving to work…

But that’s just personal energy use. We rarely think about the energy needed to raise the livestock and grow the vegetables we eat, the energy used to transport them or to make all the goods we use.

That’s why energy is such an exciting investment field. There are so many ways to produce it, and so many companies to watch. And it spans the entire globe.

Yet there’s a closely-related industry that could grow even bigger, but it’s one that people rarely consider. It may not be as exciting or fast-paced as the energy market, though it’s even more vital. And if you’re looking to multiply wealth over longer stretches of time, there’s no better market to make it happen.

Water: Energy’s Energy

It doesn’t matter what type of energy you’re talking about… from the deepest oil shale to the newest solar panel, it needs water.

A coal-fired power plant, for example, needs 520 gallons of water to produce one megawatt-hour of electricity. Add a carbon capture — which will soon be required on all plants — and the water requirement doubles to nearly 1,000 gallons per megawatt-hour.

And we still get 50% of our electricity — in the terawatt-hour range — from coal, so you can imagine how much water those plants are consuming.

But that’s just the beginning…

Oil shale extraction uses five barrels of water to get one barrel of oil.

Nuclear plants suck up more than 33 million gallons of water each day for cooling.

And it takes 2 billion gallons of water every day to refine just 800 million gallons of petroleum products.

Clean energy isn’t immune either, though it is much more sustainable. Solar requires 30 gallons per megawatt-hour; wind requires just one gallon per megawatt-hour.

It doesn’t take much more than a pulse to realize that water is just as — if not more — important as energy. And as such, some of your portfolio should be allocated to profiting from it.

The Eternal Bull

Though few people realize it, water stocks are actually a very safe way to grow your money.

Analysis has shown that there are about 270 public companies that generate at least 20% of their revenue from water-related business. Those companies have a combined market cap of nearly $300 billion, and have outperformed the broader market over the past five years.

The growing demand for water and energy, coupled with water’s limited supply, has led to growing interest in water-related investments.

CNBC reported late last year that “A growing number of funds now specialize in water, having ballooned to $1.8 billion in total assets, up by 40 percent in size in the last six months.”

Over the past year, the Dow has gained almost 60%, which is impressive. But the PowerShares Global Water ETF (NYSE: PIO) is pushing 80% for the same time.

PowerShares Global Water ETF (NYSE: PIO)

And experts at some of the most well-respected Wall Street watchdogs agree.

An analyst from Lipper (the providers of Lipper averages) recently said, “Water’s getting a lot of attention, and it has everything to do with sustainability. There’s an expectation that critical water needs are not being met, and that it’s only going to get worse in future.”

Morningstar just reported: “Emerging economies are continuing to develop, and there’s still a lot of progress to be made, so investors are focused on the growing need for potable water.”

So grabbing shares of a water ETF for the long haul is definitely a good idea. But if you know where to look, water can offer explosive short-term profits as well.

Rushing Water

Since water is such a critical resource, companies with unique advantages or that do business of high-demand markets are sometimes capable of delivering rapid gains.

I recently advised readers to buy Calgon Carbon Corp. (NYSE: CCC), which uses activated carbon to purify water, before they reported earnings. We were also holding Layne Christensen (NASDAQ: LAYN) when it was upgraded by a major equity analysis firm.

And to really show how much investors think water is worth, a group of wealthy private equity investors have offered to pay $11 per share — a quarter billion dollars — for Southwest Water (NASDAQ: SWWC) and the million customers it has in parched California and Texas.

Here’s how those companies have performed over the past week:

Calgon Carbon (NYSE: CCC) and Layn Christensen (NASDAQ: LAYN)

So water stocks are clearly capable of delivering stellar short-term gains. You just have to know what makes one more valuable than the next.

And right now, desalination is more valuable than any other water technology. Finding a way to cheaply produce freshwater from our vast salty oceans is a sure way to cure our water woes. That’s why huge companies like GE (NYSE: GE) and Siemens (NYSE: SI) have billion-dollar departments dedicated to the technology.

But so far, desalination has proven quite expensive due to the massive energy inputs it requires, leaving only oil-rich Middle Eastern countries able to pursue it on a large scale.

One company is quickly changing all that. It makes a device that uses pressure from the water to power desalination operations, allowing them to produce freshwater — right now — for several times cheaper than their closest competition.

GE is already using the technology. And Warren Buffet has already invested in it, which should indicate its viability.

In this new report, I outline how the technology works, why major investors are piling on, and how you can get in to triple your money as desalination emerges as the default technology for clean water production.

Call it like you see it,

Nick Hodge


Investor’s Note:  As most of us already know, when it comes to investment opportunity, time is of the essence. And as I mentioned earlier, water stocks are on the rise — and are sure to keep growing, as word gets out about this lucrative sector. Savvy investors will get in early to take advantage of profits.

That said, I would be remiss if I didn’t also mention another time-sensitive opportunity on the table this week… This tiny gold outfit already tripled investor’s money since we first alerted you one year ago. And as early as tomorrow, March 4, the biggest gold story of the last 50 years will hit the press. This historic news story could triple your money… AGAIN!


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